Inward Foreign Direct Investments in Africa: characteristics, country determinants and the recent upsurge of R&D activities

For many years, governments in developing countries, such as the African ones, tried to boost Foreign Direct Investment (FDI) inflows, believing that this type of investment could have a key role in the transfer of innovative technologies in their country and thus encourage their economic growth. However, even though over the past decades there has been an important improvement of FDI inflows to African countries, there is little evidence of a positive impact of FDI on technological innovation in these developing countries. The reason is that technology transfer can be mainly achieved if the foreign investment regards Research & Development (R&D) activities, which are proved to stimulate innovation among domestic firms. Most of FDI inflows to African countries are instead concentrated on manufacturing, extraction, and construction activities. Nevertheless, stylized facts show that, after 2017, there has been an important growth of FDI inflows related to R&D activities, in Africa. The aim of this research is to understand if the determinants of the FDI inflows to Africa, related to R&D activities, are changing over time. In particular, since there has been this significant variation in FDI related to R&D after 2017, it has been decided to split the analysis into two different time spans, even though the number of investments is not comparable. First of all, it will be created a “choice set” made by the most important determinants that usually influence the foreign investor in the choice of the host country. Secondly, for studying the determinants of the investments, it will be implemented a set of conditional logic models to estimate the probability that an FDI will be made in a certain country on the basis of observable country’s features. Lastly, in order to assess the peculiarity of FDI related to R&D activities with respect to the others, it will be studied the effects of the interaction between the determinants and a dummy “R&D” variable, in the two time spans if possible. Summarizing, if findings will show that the choice of FDI related to R&D activities, in the second time frame, is driven by different determinants, it could be affirmed that foreign firms are more willing to invest in innovation and thus to transfer technology to African countries.